Nine banks that have fallen short on the Fed's stress tests
Following are notable cases where banks were tripped up by the Fed's stress tests either by flunking the numbers (or quantitative) part of the test or raising red flags on a qualitative basis.
Deutsche Bank & Santander
Deutsche Bank Trust Corporation — a subsidiary of the German megabank — and Santander Holdings USA have each received qualitative objections to their capital plans in 2015 and 2016 as part of the Comprehensive Capital Analysis and Review stress tests. While the Fed said last year that the firms have made progress, they cited deficiencies in both risk management and stress testing processes.
Citigroup is among the largest banks to receive a quantitative objection, having fallen just short of the 5% minimum Tier 1 capital requirement in 2012 — the first year the Fed published CCAR results on individual firms. Citi also received a qualitative objection in 2014 because of challenges projecting revenue and losses in the Fed’s stress scenarios.
Zions is the most recent bank to have received a quantitative objection, having fallen below the 5% Tier 1 capital minimum in 2014, the first year it participated in the full CCAR exercise. The bank also was the most recent to have fallen below the minimum capital level in the Dodd-Frank Act Stress Test.
Ally Financial had a rocky start to its stress testing career, having failed CCAR on quantitative grounds in 2012 and 2013, with the bank saying after the 2013 test that it disagreed with the Fed’s assessment of its capital performance under stress. But the bank has built up its capital base since, having clocked in with a 6.6% post-stress minimum in 2014 and 7.1% in 2015.
Bank of America
Bank of America has not quantitatively failed a stress test, but it came close in 2014, having failed to meet the 4% leverage ratio and 6% risk-based Tier 1 capital ratio on its initial submissions. The bank resubmitted its capital plan and passed the tests, but was further embarrassed when it informed the Fed that it had submitted erroneous data that year, leading to downward revisions of its post-stress minimums.
The largest U.S. bank, JPMorgan Chase, has largely been confident going into and coming out of the stress testing process, occasionally releasing its results ahead of the Fed’s announcement. But the bank is not without blemish; the Fed gave the bank a conditional approval for its capital plan in 2013, but said it needed to submit a new plan later that year because of “weaknesses” in modeling.
Like JPMorgan, Goldman Sachs was asked to submit a new capital plan after receiving a conditional approval in 2013 because of weaknesses in its modeling. But the firm also missed the 4% leverage ratio threshold in 2014, requiring a “mulligan” revised capital plan.
BB&T’s capital plan was rejected in 2013 on qualitative grounds, though its post-stress Tier 1 capital minimum was 7.7% that year — well above the 5% minimum. The bank resubmitted its capital plan and has not had an objection since.